Tariff hike: Airtel, Vodafone Idea’s subscriber base may decline

The increase in average revenue per user (ARPU) due to tariff hikes by Bharti Airtel and Vodafone Idea could be dampened by marketshare loss and a churn in the subscriber base, according to experts.

“Operators have effected the tariff increase across prepaid plans, but the significant hike in base 2G plans could lead to some slippage of subscribers. We would have liked it more if the players had taken a steeper hike in 4G data plans while maintaining the affordability of 2G mobile services,” said a report by ICIC Securities.

This week, Airtel and Vodafone announced 20-25 per cent increase in prepaid tariffs while keeping postpaid plans unchanged, with the highest hike for their 2G pack.

According to ICICI Securities, this “would make telecom service less affordable”. It pointed out that the price hike for the heavily discounted unlimited 4G data plans was less in comparison. It foresaw declining subscriptions “in the next few quarters due to reduced affordability in base 2G plans, and SIM consolidation”. It says subscribers are likely to downgrade to cheaper plans and that “the new plans make JioPhone Next relatively attractive”.

According to a report by Motilal Oswal, “[The base plan] has now increased to ₹99, compelling consumers to recharge to higher plans, offering a huge push to ARPU. However, this may result in further consolidation of dual SIM cards, increasing churn.” So, while the tariff hike will improve cash flow — as EBITDA could increase to ₹9,500 crore from ₹5,500 crore annually, to meet the requirement of ₹8,000-10,000 crore for capex and bank debt servicing — the marketshare loss and subscriber churn could potentially derail the cash generation, as happened during the previous hike, the report says.

Experts see a 16.7 per cent blended ARPU rise for Bharti and Vodafone Idea due to the tariff hike. The ICICI Securities report explained, “Prepaid constitutes approximately 80 per cent of mobility revenues for Bharti and VIL; and new tariffs should result in 21 per cent prepaid ARPU rise. We see 16.7 per cent increase in blended ARPU/ revenue for Bharti and VIL.”

“This hike, catering to approximately 70 per cent of its revenue pool, can potentially offer an incremental EBITDA of ₹38 billion [₹3,800 crore] (2QFY22 annualised), that is, a 68 per cent jump v/s 13 per cent for Bharti,” the Motilal Oswal report added.

“VIL’s cash flow crunch will get addressed provided the current subscriber churn is arrested, with ₹8,000-10,000 crore of estimated annual capex and interest expense. It needs immediate funding for ₹6,400 crore of NCD repayments due between Dec ’21 and Mar ’22,” said Motilal Oswal. PostinTrend